(Module 3)

Indirect Cost Rate (ICR)

TrainingLABOR Components

Direct Labor

• Definition – Direct labor is production or services labor that is assigned to a

specific product, cost center, or work order. All direct labor costs must be included

in the direct labor base regardless of whether the costs are billable to a client.

• The allocation base of the Indirect Cost Rate (ICR) Schedule

• Denominator for rate calculation (Indirect Expenses / Direct Labor = ICR

Rate)

• Examples of non-billable project labor hours that

should be included in the direct labor base:

• Project hours expended which exceed the

allowable limit to a lump-sum agreement.

• Project hours over budget that cannot be billed.

• Project hours worked prior to notice to proceed.

Fringe Benefits

• Definition – Fringe benefits is an employment benefit granted by an

employer that has a monetary value but does not affect basic wage rates.

It include costs for employee incidental payments and costs associated

with the employer’s portion of payroll taxes & employment benefits.

• Applies to Employees and Owners

• Examples of possible fringe benefits (some of these categories may not apply to your firm):

• Payroll Taxes (Employer’s Portion)

• Bonus• Auto Allowance

• Medical and/or Life Insurance

• Paid Time Off (PTO) and

Holidays (if applicable at your

firm)

• Retirement (applicable portion)

Indirect Labor

• Definition – Indirect Labor is hours that cannot be traced to any one

specific project.

• Examples• General and Administrative Labor

• Bid & Proposal (B&P) Labor

• See Indirect Cost Rate Selling Labor Guidance

• Direct Selling Labor

• Advertising Labor

• Public Relations Labor

• Education/Training Labor

• The AASHTO Audit Guide uses the term “Marketing” to identify

unallowable types of selling labor. The term “Marketing” is too

general, and is not defined in the Federal Acquisition Regulations

(FARs).

Uncompensated Overtime

• Definition – Hours worked without additional compensation.

• Applies to salaried staff and/or owners – Exempt salaried/owners may

work more than 40 hours per week with no additional pay.

• Hours worked in excess of 40 hours per week, or 2,080 hours per year.

• Could be Direct, Indirect, or Combination

• Labor is recorded at the standard rate (Salary/2,080 hours)

• If your firm records labor at the effective rate, this will need to be converted to the

standard rate and may result in uncompensated overtime.

• Effective rate is calculated weekly based on actual hours worked.

• The effective rate is not compatible WSDOT A&E Cost Reimbursement

Agreements.

Uncompensated Overtime

• Payroll Variance account is used to reconcile total dollars paid to total labor reported.

The Payroll Variance account will appear in your General Ledger (GL); on your

Income Statement; and on your Indirect Cost Rate (ICR) Schedule.

• Example – An employee works 45 hours (30 direct hours, 15 indirect hours) in a

week but is paid his standard weekly salary of $800 (40 x $20 per hour).

• The entries to the accounting system would appear as follows:

Direct Labor $600 (30 hours x $20 per hour)

Indirect Labor $300 (15 hours x $20 per hour)

Payroll Variance ($100) (5 hours not paid x $20 per hour)

Total Labor $800

(Matches what employee was paid yet still

records the value of the 45 hours worked)

Please review our Indirect Cost Rate

Uncompensated Overtime Guidance

for more information.

Selling Labor Activities

• Your Indirect labor will include various types of

activities, and depending on the category, you

will need to keep certain types of

documentation to support that specific type of

labor.• The following labor categories are explained more in

depth in our Indirect Cost Rate Selling Labor

Guidance

• Bid & Proposal

• Direct Selling

• Public Relations

• Advertising• Note – Firms should not use the term

“Marketing” to track and record selling

activity labor and expenses

Indirect Cost Rate (ICR) Schedule

Recap Example

Where are the labor components

on the Indirect Cost Rate (ICR)

Schedule?• Direct Labor will be it’s own section on

the ICR.

• Fringe Benefits will be included as a

separate section directly proceeding

the direct labor.

• Indirect Labor will be presented in the

General Overhead section directly

proceeding the Fringe Benefits

section.

• Selling Labor will be broken down

into their proper categories.

• Payroll Variance (Uncomp OT) will be

presented with the indirect labor.

Be Sure to Visit Us Online

Our website is filled with educational material and guidance

for all firms. We have published several interpretive guidance

documents to further assist firms. The website below

provides guidance on the following topics and we are

continuing to add further topics:

• Labor

• Uncompensated Overtime

• Direct Selling, Public Relations, Advertising and Bid &

Proposal

• Allowable Bonus

• Auto Expense

• Meals

• Airfare

Please check our website on a regular basis for updates.

• URL –

WSDOT Safe Harbor Program:

URL –

For Additional Guidance and

Contact Information

Please refer to the end of Module 6!